Morningstar Equity Research has unveiled its 10 “cheap, wide-moat” US stocks for 2025, spotlighting companies with strong competitive advantages that enable them to fend off rivals and deliver long-term value to investors.
What Are Wide-Moat Stocks?
Wide-moat stocks represent companies with enduring competitive edges built through strategies like:
- High switching costs for customers.
- Iconic brand identities that inspire loyalty.
- Economies of scale that keep costs low and profitability high.
These companies also boast sound balance sheets, making them desirable picks amid today’s economic uncertainties, says Susan Dziubinski, an investment specialist at Morningstar. She notes that investing in wide-moat stocks trading at a discount to their fair value has historically been a successful strategy.
The Top 10 Undervalued Wide-Moat Stocks
As of Dec 27, 2024, the 10 most undervalued wide-moat stocks, according to the Morningstar Wide Moat Focus Index, are:
- Estee Lauder (EL)
- Trading 54% below fair value, making it the most undervalued on the list.
- Its shares have fallen 47% in 2024, closing at US$73.98 on Jan 2.
- Huntington Ingalls Industries (HII)
- Pfizer (PFE)
- International Flavors & Fragrances (IFF)
- The only stock with a price increase in 2024, up 2.05% year-on-year.
- Nike (NKE)
- Campbell Company (CPB)
- Shares declined the least, falling just 6% to US$42.03.
- Brown-Forman (BF.B)
- Zimmer Biomet (ZBH)
- NXP Semiconductors (NXPI)
- MarketAxess Holdings (MKTX)
- Trading 25% below fair value, the least undervalued stock on the list.
Why These Stocks Matter
“These wide-moat stocks represent high-quality opportunities for long-term investors, particularly those looking for discounted investments,” says Dziubinski. Companies like Estee Lauder and Pfizer bring a combination of resilience and growth potential, making them compelling picks for 2025.
Performance in 2024
The list reflects diverse performance:
- Biggest decline: Estee Lauder’s shares tumbled 47% in 2024.
- Steady performers: Campbell’s Co weathered the storm, dropping just 6%.
- Notable growth: International Flavors & Fragrances bucked the trend, gaining 2.05%.
An Investment Opportunity
While markets face uncertainties, Morningstar believes these stocks are positioned to thrive in the long run. With sound fundamentals and significant discounts to fair value, they offer investors a chance to buy into companies with decades of competitive dominance at compelling prices.
For long-term value hunters, Morningstar’s wide-moat picks could be the cornerstone of a resilient portfolio in 2025.
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